RBI signal in policy review: Forget rate cut this year

The Reserve Bank of India kept key rates unchanged in its policy review meet today, but cut the

by 50 bps to 22%.

The central bank left the repo rate, or that rate at which it lends to banks, unchanged at 8%, while the cash reserve ration (CRR) was also the same at 4%. This is the second consecutive time that the RBI has not made any changes to its rates on account of stubborn inflation.

The statutory lending ratio, or the portion of capital that banks must park with RBI in the form of bonds, was cut by 50 bps to 22%, thus freeing up funds for banks.

The RBI also cut the ceiling on debt that must be held-to-maturity by half a percentage point to 24%.

“RBI’s policy today has been slightly hawkish than the last statement by shifting the inflation target from 8 percent towards the medium term target of 6 percent, thereby further affirming our view of a pause on the repo rate front at least through this year,” said Upasna Bhardwaj, economist at ING Vysya Bank.

Warning about inflation, RBI in a statement said, “With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted.”